Saturday, 21 April 2012

Intelligent Fraud

An intelligent internet fraud was uncovered by SEC on Friday.A pair of British brothers marketed Marl, a fictitious “stock-picking robot,” and earned $1.2 million from 75,000 investors buying newsletters and home “robot software” used to access Marl’s stock picks.Since “Marl” did not really perform analyses, the Hunters were earning at least $1.87 million from stock promoters.What makes this incident more interesting is that the brothers are now 21 years old only, and they started the alleged scheme in 2007, which means they were just 16 years old.

The brothers made creative claims on their websites.According to the complaints received by SEC, the website pronounced that Marl could pick out distinct trading patters “in split second timing” and could process 1,986,832 mathematical calculations per second.Therefore, trading according Marl’s picks could earn investors 34% a week.

In fact, Marl’s picks did skyrocket in price once the newsletters were out.Since Marl picked penny stocks that often had a low trading volume, the robot’s choice would experience a surge in price before it fell back to earth.

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everal aspects of discussion come up from this story.First, the anonymity on the internet allows unethical behaviors like lying to the investors.Second, investors should clearly understand the background, prospects, and drivers to prices before investing.It is important that they do not blindly follow any one of the millions newsletters that claim to bring definite profits.Third, if we believe in the efficient market hypothesis, the equilibrium stock prices in general should reflect the fundamental value of the stocks.As we can see from the fluctuations of the prices of Marl’s picks, they rise due to the irrational behaviors of investors, and then fall back to the original prices, which are their fundamental value, because investors realize that the stocks themselves do not worth the trading price.